Woori Financial Research Institute predicted on August 6 that the Bank of Korea will decide on a 'hawkish freeze' at its Monetary Policy Board meeting on August 27. The institute expects the base rate to remain at the current 2.75%, citing the need to monitor July rate hike effects, downward stabilization of the dollar-won exchange rate, and increased volatility in domestic and foreign financial markets. The forecast suggests 1-2 dissenting votes for a rate increase or Governor Shin Hyun-song strongly signaling future rate hike possibilities during a press conference. This hawkish stance reflects anticipated significant upward revisions to GDP and inflation forecasts in the BOK's upcoming economic outlook update.
Bank of Korea Expected to Hold Base Rate at 2.75% on August 27
In its 'August Financial Market Brief' released on August 6, Woori Financial Research Institute stated that the Bank of Korea will maintain the base rate at the current 2.75% level at the Monetary Policy Board meeting. The institute cited three factors: the need to assess July rate hike effects, the downward stabilization trend of the dollar-won exchange rate, and expanded volatility in domestic and foreign financial markets. The institute noted that despite the rate freeze, 1-2 dissenting opinions favoring a rate increase may emerge, or Governor Shin Hyun-song may strongly signal future additional rate hike possibilities during a press conference, characterizing this as a 'hawkish freeze.'
GDP and Inflation Forecasts to Be Significantly Raised
Woori Financial Research Institute predicted that the Bank of Korea will significantly raise its GDP and inflation forecasts in this month's revised outlook. This assessment is based on materials the BOK submitted to the National Assembly in late last month, which indicated that this year's economic growth will expand significantly compared to last year and will also rise substantially from the May forecast of 2.6%. The institute expects the BOK to make large upward adjustments to both GDP and inflation projections in the upcoming revision.
3-Year Treasury Yield Forecast to Rise Gradually Toward Month-End
Regarding treasury bond rate outlook, the institute forecast that the 3-year treasury yield will rise gradually toward month-end, influenced by consumer price data released on August 4, Middle East conflict situations, and global interest rate movements. The institute stated that vigilance ahead of the BOK's Monetary Policy Board meeting combined with the government's budget proposal announcement will drive this gradual increase. The spread between 10-year and 3-year treasury yields is expected to widen further or fluctuate near last month's high of 48 basis points, affected by August treasury issuance plans, supply pressure from next year's budget announcement, and upward pressure on US long-term rates.
Dollar-Won Rate Expected to Decline to Around 1,420 Won Level
Woori Financial Research Institute forecast that the dollar-won exchange rate will decline further to fluctuate around the 1,420 won level. The institute attributed this expected decline to several factors: joint intervention by the US and Japan to prevent yen weakening, narrowing of the Korea-US interest rate gap due to the BOK's hawkish stance, SK Hynix ADR conversion, and dollar selling by exporters.
FAQ
What did Woori Financial Research Institute predict for the Bank of Korea's August 27 meeting?
Woori Financial Research Institute predicted on August 6 that the Bank of Korea will decide on a 'hawkish freeze' at its Monetary Policy Board meeting on August 27, maintaining the base rate at 2.75% while signaling potential future rate increases through dissenting votes or Governor Shin Hyun-song's press conference remarks.
Why does the institute expect the BOK to hold rates despite hawkish signals?
The institute expects the rate hold due to three factors stated in its August 6 report: the need to monitor effects of the July rate hike, downward stabilization of the dollar-won exchange rate, and increased volatility in domestic and foreign financial markets. However, anticipated significant upward revisions to GDP and inflation forecasts support the hawkish tone.
What is the forecast for the dollar-won exchange rate in August?
Woori Financial Research Institute forecast that the dollar-won rate will decline further to fluctuate around 1,420 won, driven by US-Japan joint yen intervention, narrowing Korea-US rate differentials from the BOK's hawkish stance, SK Hynix ADR conversion, and exporter dollar selling.
